Britons living in Spain have been hit by a housing crash that has led to the value of houses and apartments on the Costas falling by 20 per cent and estate agents predicting worse to come. A glut of new property, built during a decade of booming prices, has left thousands of homes unsold, increasing the risk that prices will not recover for many years.

The Spanish property market has all but ground to a halt, and Spanish and British buyers alike have been hit by the effects of the global credit crunch, rising interest rates and an economy slowing sharply.

When Carol Degan and Colin Kennett put their three-bedroom, two-bathroom house on the Costa Blanca on the market, they thought that it would be sold in a few months. A year and a half on, the couple have yet to receive a single serious inquiry.

“We’ve got three estate agents, and we haven’t received one inquiry from them,” says Mr Degan, 48, from his home in Almoradi, about 20 minutes inland from Torrevieja.

With two fast-growing boys, the couple from Kingston Upon Thames are looking for a larger place in Spain, their home for the past four years. They have cut their asking price from €225,000 to €210,000 (£180,000 to £167,000).

The Euribor — used by Spanish banks to set mortage rates – hit 5 per cent last week for the first time since 2000. And it is much more difficult to get a mortgage — Spanish banks are rejecting 6 out of ten applications, compared with 4 out of ten a year ago.

Britons have also been affected by the pound’s decline against the euro — it has lost nearly 15 per cent in value in the past year, making purchases in Spain more expensive.

The effect on Spain’s housing market has been severe. The combined value of sales among the country’s seven largest developers fell from €1.3 billion to €300 million in the first quarter of this year.

Estate agents are closing their offices all over Spain as buyers sit on the sidelines, waiting to see how low the prices will go.

“The market is frozen, developers are having liquidity problems, prices are falling,” says Mark Stucklin, the head of Spanish Property Insight, a property information website.

“It’s really difficult to know where the price floor is. There’s nothing selling. Vendors haven’t yet come to terms with the new reality and are still holding on. There’s a lot of resistance to lowering prices because people have large mortgages and negative equity, which means that they have to pay the bank.”

The Spanish Housing Ministry says that prices fell in real terms in the first quarter of 2008 for the first time in a decade. But many market watchers say the official figures have not yet picked up the full extent of the drops, particularly on the Costas, where most Britons have bought houses.

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